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Charles Kennedy

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China Reshapes Energy Sector, Shifts Towards Market Economy

Chinese President Xi Jingping continues his efforts to reorient the Chinese economy on market principles, and a few recent developments highlight the tangible results.

First, on November 30 the Chinese government announced reforms for its electricity sector to stoke more competition in the marketplace. The move will end the monopoly power that state-owned companies have over electricity distribution. The government will expand pilot programs aimed at the cost of building transmission lines. It will also allow electricity consumers to negotiate directly with power generators.

“Direct power purchase will help restore electricity’s commodity character and is an important step toward fully opening-up China’s electricity market,” the National Development and Reform Commission said in the statement. “Direct trading will bring end users benefits.” Related: Saudi Cash Crisis Intensifies As Interbank Rates Soar

That mirrors a move only a few weeks ago in which the NRDC overhauled the price of natural gas, cutting prices in order to spur demand. The move was intended to provide an alternative to coal for electricity generation.

On a separate note, the International Monetary Fund is expected to announce on November 30 its decision to declare China’s currency, the yuan, as a reserve currency. The yuan will join a select club of currencies, consisting of only the U.S. dollar, the Japanese yen, and the British pound. The move will be finalized in 2016. Related: Oil Gains Ahead Of OPEC Meeting, Dollar Caps Growth Potential

The ascent to reserve currency status is a monumental symbol for China as a global power. But it will also reinforce pressure on China to continue to move towards a market-oriented economy. In the past, China has intervened to manipulate the exchange rate of the yuan, a reason that the currency has not been able to obtain reserve currency status until now. It has made sufficient progress in removing capital controls and opening up the economy for the IMF, it seems, but the pressure will continue.

The moves come as China plans to launch an oil futures benchmark that would compete with other markers around the world such as Brent. The launch of the marker on the Shanghai International Energy Exchange (INE) was expected in 2015, but may be pushed off until next year. An Asia-oriented oil benchmark could contribute to an ongoing shift in influence over oil markets from west to east.

By Charles Kennedy of Oilprice.com

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  • Len B on November 30 2015 said:
    Free...by hauling in brokers who short stocks or halting stocks for months...is that what u call free...madness to even say it

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